Call it another French paradox, but the Gallic tradition of appreciating quality extends to America's movies, from the smallest indie to megabuck Hollywood fare. For 31 years, that appreciation has blossomed annually -- free of jealousy, rancor or ulterior motives -- in a Normandy resort town.

The town is home to luxury hotels, a casino and a civic personality so far removed from an inferiority complex that although it's a two-hour drive or train trip from the capitol's 20 arrondissements, Deauville is colloquially known as "the 21st arrondissement."

And here, art is art and commerce is beside the point.

Michael Cimino was treated like a god when he collected Deauville's literary award for his novel "Big Jane" in 2001. That was no fluke.

Indeed, the honorees at Deauville this year reflect France's eclectic taste in U.S. cinema arts: Robert Towne, Ron Howard, Forest Whitaker and James Toback.

Toback will be screening his latest pic, "When Will I Be Loved," and doc "Toback: The Outsider," directed by Nicholas Jarecki, will also unspool.

Howard's "Cinderella Man" gets its French bow as the headliner of a boxing films retro, while Uncle Sam's Docs unspools U.S. nonfiction, including Oscar-winner "Born Into Brothels."

The Literary Award this year goes to Budd Schulberg for his book "Sanctuary V."

And although this is a fest devoted to American offerings, since 1991, the Michel d'Ornano Award goes to a French first film written and directed by the same person. This year, Karin Albou's "Little Jerusalem" earns that honor, which comes with a cash prize.

Despite the fact that every big star and honoree shows up here, year in and year out, it's far from being a place where U.S. companies can launch an early awards campaign -- anything that extends beyond casual and gracious is overkill at Deauville.

Since the 10-title Competition was launched in 1995, Deauville has, technically, been a competitive fest. But while the caliber of the competition tends to be quite high -- as do the reputations of the entertainers and artists on the jury -- there is virtually no commercial impact, good or bad. A prize at Deauville simply denotes quality.

This year, films set for the Competition include "The Ballad of Jack and Rose" from Rebecca Miller; "Brick," from Rian Johnson; Paul Haggis' "Crash"; "Edmond" by Stewart Gordon; Ira Sachs' "Forty Shades of Blue"; "Keane" from Lodge Kerrigan; "On the Outs" by Lori Silverbush and Michael Skolnik; "Pretty Persuasion" from Marcos Siega; "Reefer Madness" by Andy Fickman; and "Transamerica" by Duncan Tucker.

On the opening and closing weekends, French industryites salute each other as the summer officially comes to an end. Until a few years ago, releasing a French film in July or August was practically shorthand for dud.

That pattern is being shaken up due to the sheer volume of French films. But the prestige slot for films of any nationality is still la rentree -- the first week of September, when summer languor gives way to autumn industriousness. Deauville, which runs Sept 2-12, kickstarts the cinematic "re-entry" in style.

The drop in foreign box office during the first half of 2005, and the even greater slump in movie admissions, have left European distribs and exhibs scratching their collective heads.

The stats are sobering: B.O. grosses are down 18% in Italy, 15% in France, 12% in Spain, 11% in Germany and 2% in the U.K. in the first six months of the year. They're down across Latin America and across most of Asia as well.

That means grosses are off abroad noticeably more than they are in the U.S., where B.O. returns have slipped 8% since the beginning of the year.

The slump abroad also mirrors a general malaise in the overall entertainment biz: In a number of territories, people are buying fewer books and CDs, they're going to the theater less often and travelling to theme parks and outdoor events less willingly. Everything from gas prices to jitters about terrorism are being cited to explain the retreat from leisure time activities.

But it's the movie biz that's suffering most dramatically.

Among the specific culprits hauled into the dock to explain the phenom abroad are piracy, DVD windows, day-and-date release patterns, competition from computer games and mobile ringtones, economic slowdown, global warming.

All, doubtless, have played their part.

But in the end, everyone from senior Hollywood execs to local theater managers abroad comes back to the most fundamental explanation of them all: The movies just haven't been good enough.

There are, says one Hollywoof film chieftain, just too many little ideas masquerading as big ideas. When it comes to tentpoles, he suggests, it's better to have a single big visual idea, like say "Day After Tomorrow" or "Independence Day" that can be enhanced by specials effects, than some modest idea which really doesn't warrant the epic treatment.

And, others add, when the ideas are not that big -- think "The Island," "Stealth" and "XXX" -- the tentpole treatment is almost always disappointing.

The Europeans come at the subject a little differently, generally lamenting a paucity of mainstream commercial fare with punch or flare.

"It was a lack of films with mass appeal" that caused the sharp drop in France, the Federation National des Cinemas Francais tells Variety. The org points out, however, that the first six months of 2004 were the best in Gaul since 1984, setting the bar high.

A handful of the latest Hollywood entries into the market are, however, starting to put some bounce back into foreign B.O.

UIP is doing gangbuster biz with "War of the Worlds" and "Madagascar" -- each on course to outperform domestic by 30%.

As UIP chairman Stewart Till puts it, "Both have set records in many territories, as the best Tom Cruise movie or the best animated movie, all of which would indicate they are not being released in a weak market."

Warners' "Charlie and the Chocolate Factory" is also just now coming into the foreign market smartly.

In other words, release a few titles with solid international appeal, and suddenly all the elaborate theories about foreign auds losing their appetite for bigscreen entertainment get trampled in the rush to the wickets.

In fact, it's not that overseas auds collectively turn up their nose at popcorn movies: They turn up their noses when these movies are done badly or simply don't deliver story-wise.

As for more upmarket fare, which Europeans in particular claim they prefer to dumbed-down blow-em-ups, their performance is mixed abroad, too. Often such fare is perceived as too American in subject or tone. "Cinderella Man" and "Crash," in other words, may have their work cut out for them abroad this fall.

The foreign distribution mavens of the Hollywood studios are understandably skittish about criticizing their bosses. But privately, they are scathing about the overall supply of weak, U.S.-oriented product.

One senior studio marketing exec says: "This industry needs to reinvent itself. Hollywood is making sequel bullshit, same old stuff. They are running out of ideas."

Another suggests that tentpoles and niche pics are doing decent business, but "the stuff in the middle is suffering. We've got a lot of U.S.-centric product that translates less well. Maybe foreign teenagers have different interests from American ones."

In short, various execs contend, Hollywood has to start making pictures for the global market rather than making pictures for the domestic market and pretending they are for the global market.

Domestic stars like Will Ferrell, Adam Sandler and Rob Schneider have little currency abroad; very "American" movies like "Coach Carter," "Spanglish" and "Kinsey" did not travel well.

As for mid-market American comedies, they occasionally break out, but tend to be patchy.

"Wedding Crashers," for example, is boffo in Blighty, but hasn't set the wickets alight in Germany.

Already there's been an uptick in late July and early August. There's widespread optimism that the second half of 2005 will make up some of the ground lost in the first half.

Year-enders "King Kong," "Chronicles of Narnia" and "Harry Potter and the Goblet of Fire" are all regarded as good bets.

The first half of the year was, by common consent, two major movies short of par.

There were "Star Wars 3," "Meet the Fockers" and "Hitch," with decent back-up from "Kingdom of Heaven." But by direct comparison with the first half of '05, there was no "Lord of the Rings" and no "Harry Potter."

As for the impact of other factors on overall grosses:

• Day and date Studio mavens insist that this is not hurting foreign B.O., whatever exhibitors might say. For a start, it's not a widespread or universal policy, and is only used for the real blockbuster event pics.

"Day-and-date is not a one-size-fits-all approach, where all big films suddenly should go day-and-date," said Warner Bros. Intl. marketing prexy Sue Kroll. "There are many different factors, it's not a wholesale approach. There are a lot of different challenges as well as benefits."

High-concept pics with major stars and potential piracy problems -- such as "War of the Worlds" -- are still prime candidates to go day-and-date, but it's hard to justify the strategy for films that might need word-of-mouth to build internationally.

In addition, the massive cost behind a day-and-date release as well as the precision of pulling off the job properly leaves little room for error and can become risky.

Fox went D&D with "Kingdom of Heaven" and "Star Wars 3," to great success, but was "a bit more staggered" with "Mr. and Mrs. Smith."

UIP went D&D with "War of the Worlds," but staggered with "Madagascar" -- and both approaches worked.

"For 'War of the Worlds,' 'Independence Day' or 'Day After Tomorrow,' it makes sense, because these are global events with global themes. But for other films, it's about finding the right release window in the right competitive environment," says Fox exec VP Christian Grass.

• DVD windows There's no clear consensus on whether the narrowing of DVD windows is eating into box office.

Research shows that audiences aren't conscious of how long or short the DVD window is. And even if the window is down to four months, that doesn't compete directly with theaters because films have burned through their theatrical life within six weeks of opening.

On the other hand, there could be an unconscious effect where auds are vaguely aware the DVD will be along soon, so they can afford to wait instead of going out to the cinema.

"We've trained the consumer to wait for DVD, and then on DVD we've trained them to wait a couple of months for the price to drop," says one studio exec.

• The economy Consumer spending is faltering across the board in Europe. The downward B.O. trend is mirrored in figures from pubs, shops and other areas of retailing and entertainment. If the U.K. resisted the general downswing in the first quarter, that's because the local economy didn't start to slow until the spring.

In Italy, things are considerably worse.

"We were recently called 'the sick man of Europe' by the Economist. It's obvious that this is also rubbing off on moviegoing," says Fox Italy general manager Alberto Pasquale.

• Local pics disappointed

Germany is a prime example of this trend. Last year "Spaceship Surprise," "Seven Dwarfs" and "Downfall" helped propel the market share of Teutonic films to 24% of the total gross, while so far this year local fare has hardly made a peep.

• Piracy On this score, impact varies by territory, with Germany and Spain being hit the worst.

According to Jose Manuel Tourne, managing director of Spain's MPA-affiliated Federacion Anti-Pirateria, Spaniards made 37 million copies of films for friends and acquaintances, often without charging money. Illegal downloads ran at 16 million copies; street sales of bootlegged DVDs at 17 million copies. Because of piracy, 5% of spectators stopped going to the cinema entirely last year. A further 14% reduced attendance.

• Weather Unseasonable warmth in the late spring/early summer can dampen the Euro B.O., unless the films are strong enough to counteract it. That happened this go-round.

Faced with all these challenges, the studios need to be smarter about marketing.

One campaign that worked better in foreign than in domestic was that for "Kingdom of Heaven," which Stateside was pretty generic but abroad was more personal and specific, focusing on the main character Balian.

One that should have worked better was the campaign for "Batman Begins," which, at least in the U.K., had nothing innovative: Pic grossed 13 million pounds, when it should have probably hit 30 million.

Unfortunately, with theatrical B.O. and DVD flattening, the studios are starting to batten down the hatches on their P&A costs. Also, the more fragmented landscape demands a more sophisticated approach.

"The time when you can just book a generic 20 or 30-second TV spot and hope you've got your message across is over. We are now using tools such as Internet marketing, more creative in-cinema marketing and more targeted database marketing with exhibitors, rather than generic and broad campaigns," says Fox's Grass.

The studios also need to get savvy and more selective about what they release.

With mid-market pictures, for example, the trick may be to pick out potential winners like "Wedding Crashers" and to be much more careful and walk away when necessary.

Despite the slump, Hollywood pros say they are not hitting the panic button quite yet.

"I don't think anyone went into 2005 thinking we would meet or beat those figures from last year," said Warner Bros. international distrib exec Nancy Carson. "It's cyclical. Europe is down in some markets, and consumer spending there is down. It's also the films that are out there at the moment."

Others are less sanguine, citing Hollywood's growing reluctance to take chances.

"They make movies for the wrong reasons,' one pessimistic exec says. "What are they coming up with? TV characters. In greenlighting meetings, they now say, 'OK, we need three tentpoles' instead of 'OK, what scripts are good?' "

BOX OFFICE FACTOIDS

France: Boosted by Internet marketing, local fave 'Brice de Nice' became the second-highest scorer so far after 'Star Wars III.'

Germany: Teutons thumbed their noses at the latest American comicbook heroes -- 'Batman Begins' and 'Fantastic Four.'

UK: 'Closer' raked in $15 million in Blighty, a performance driven by pic's combo of Brit setting and Hollywood star power.

Spain: The Spanish flocked to French movie 'The Chorus' in a sign that there is an appetite for foreign, non-U.S. fare.